Mark Kleinman is the man the City reads – and in his fortnightly column for City A.M., he shares his insight and analysis.
Vodafone boss hopes deal eases the pressure
At last, an engaged tone. Two months after I wrote in this column that Nick Read, the Vodafone chief executive, was looking nervously over his shoulder for the sharp edges of his chairman’s axe, the FTSE-100 telecoms giant is finally dialling up some meaningful merger activity.
Granted, its talks to combine its British operations with those of Three UK, owned by the Hong Kong-based conglomerate CK Hutchison, are not transformational for the wider company. And arguably a deal to acquire TalkTalk would make more sense for Read.
Nevertheless, confirmation of my story that Vodafone and CK Hutchison are now in advanced discussions about a combination of their businesses should buy Read time with three potentially predatory – or, at the very least, intrusive – shareholders now firmly positioned on the company’s share register.
According to its statement this week, a merger would enable the two companies to “gain the necessary scale to be able to accelerate the rollout of full 5G in the UK and expand broadband connectivity to rural communities and small businesses”. Vodafone cited findings by the industry regulator, Ofcom, suggesting that on a standalone basis, they “lack the necessary scale to earn their cost of capital”.
“The merged business would challenge the two already consolidated players for all UK customers and bring benefits through competitively priced access to a third reliable, high quality, and secure 5G network throughout the UK,” it added.
Serious risks to Read’s vision linger, however. The most pressing is the Competition and Markets Authority, which will inevitably want to refer the deal to an in-depth phase-II inquiry given that it will reduce the number of big players in Britain’s mobile phone market from four to three.
It isn’t only the fact that the tie-up will create the largest operator by number of customers, but as Vodafone and Three UK’s rivals will point out, between them they will control 46% of the UK’s mobile spectrum. Expect, therefore, merger remedies to include substantial spectrum disposals.
There’s also the far-from-irrelevant question of whether Vodafone shareholders will back Read. By customer numbers, his business is twice the size of Three UK’s, yet it is getting only 51% ownership of their proposed joint venture.
With the activist shareholder Cevian Capital, Xavier Niel and Emirates Telecommunications Group all now disclosed among his shareholders, proving his dealmaking prowess will be key to Read’s ability to remain in the Vodafone hotseat.
Battle over British Steel takes another turn
The perennial conundrum of what to do about Britain’s steel industry is rearing its head yet again.
Three months ago, Tata Steel, the UK’s biggest producer and owner of the Port Talbot plant in south Wales, made it clear it was still seeking up to £1.5bn in government support – a package it has been requesting since the start of the COVID-19 pandemic.
Then, at the weekend, I revealed that Jingye Group, the Chinese owner of Scunthorpe-based British Steel, had approached Jacob Rees-Mogg, the new business secretary, with a request for hundreds of millions of pounds of taxpayers’ money. Without it, Jingye is said to have told Rees-Mogg, it will shut one or both of British Steel’s blast furnaces, leaving roughly half the company’s 4,000-strong workforce at risk of redundancy.
If this all sounds wearyingly familiar for British Steel employees, it is. Jingye’s purchase of the company out of liquidation in 2020 was supposed to presage a long-term future for it. Boris Johnson, the then prime minister, declared that the deal would guarantee the continuation of steel production in northern England “for decades to come”.
Sadly, that prophecy looks like it may be as shortlived as the premiership of his successor might turn out to be. Rees-Mogg and his Cabinet colleagues are in an invidious position: accede to Jingye’s request and they open the floodgates to similar pleas from heavy industrial energy users, while also inflaming China hawks on the right of the Conservative Party; reject it, though, and see thousands of industrial jobs disappear from red wall seats that the Tories must win in 2024 if they’re to have any hope of retaining power.
Steel industry sources tell me that Whitehall officials are engaged in a serious dialogue with Jingye about its request, with further talks expected in the coming weeks. Global market dynamics suggest that allowing Britain’s once-powerful steelmaking capacity to wither further would be a mistake. Spending billions of pounds of taxpayers’ money propping up an industry which will inevitably find itself with the begging bowl out again in years to come hardly looks like an attractive alternative.
New boss for London biz group
The capital’s business lobbying groups deserve heavyweight leadership, so it’s pleasing to report that BusinessLDN – formerly London First – will announce today that Sir Ken Olisa, the entrepreneur, boardroom pluralist and Lord-Lieutenant of Greater London, has been recruited as its next chairman.
Sir Ken will replace Paul Drechsler at the end of the year, and his in-tray will not be light: the cost-of-living crisis, international travel, London’s affordable housing challenge and growth and competitiveness issues will all feature prominently.
Mark Kleinman is Sky’s City Editor